Look Who’s Shorting Deutsche Bank

Ranger Equity Bear is the only ETF that incorporates fundamental-driven stock selection. Here’s what it’s betting against now.

It was a slap in the face to investors. After two full months of trading without a move greater than 1% in either direction in the Standard & Poor’s 500 index—a period in which the index hit multiple record highs—a sudden 2.5% one-day swoon earlier this month broke the calm. Wall Street strategists recently surveyed by Barron’sare more pessimistic about future equity returns than at any point since the wake of the technology bubble.

That means now may be an opportune time for investors to reacquaint themselves with bear funds, which employ short-sellers to bet against certain parts of the market. The funds are meant to guard portfolios against the brunt of sharp declines. It should be no surprise that this group has fared badly over the past few years as major stock benchmarks have rallied mightily.

But hedging, or protecting against, stock-market declines could be coming back into style. Though there are a handful of actively managed bear-market funds available to retail investors, the $198 million AdvisorShares Ranger Equity Bear exchange-traded fund (ticker: HDGE) is the only ETF that incorporates fundamental-driven stock selection to find its bearish bets.

Short-selling active managers earn their salt just like long-oriented stock pickers: beating the benchmark. The AdvisorShares ETF has tended to dart higher when markets tumble than its main rival, the ProShares Short S&P 500 ETF (SH), which is designed to move in the opposite direction of the S&P 500 each day. Take the period from late 2015 through early February, a bout of market duress that was kick-started by the Federal Reserve’s first interest-rate increase in nearly a decade. The actively managed AdvisorShares ETF rose nearly 26% as the S&P 500 fell 13%. This return roughly doubled that of the ProShares ETF over the same period.

Name:

Brad Lamensdorf

Age:

Co-portfolio manager

Education:

B.A., University of Texas

Hobbies:

Sailing, fishing

Even if an investor isn’t interested in the bear-fund category, there are insights to be gleaned from managers who make a living betting against stocks. Barron’s sat down with Brad Lamensdorf, a co-manager at Ranger Alternative Management, which has been running the short-selling ETF since its launch in January 2011.

Given the ETF’s unique requirement for daily transparency, investors can take peeks into its portfolio each day for glimpses of its short positions. Here are excerpts from our chat with Lamensdorf about what stocks the ETF is betting against right now.

John Del Vecchio, forensic accountant and co-portfolio manager of the Ranger Equity Bear ETF (NYSEArca: HDGE), has a new book out that puts indexing in a favorable light, but with a few important twists. Del Vecchio told IndexUniverse.com

Correspondent Cinthia Murphy that owning swaths of the market is the only way to preserve returns in a world full of vagaries that can torpedo the most established of companies. But that doesn’t mean he buys into traditional market-capitalization-weighted methodologies.

Read the entire Q&A here - He discusses the key concepts behind that fund in his book “What’s Behind The Numbers?” (McGraw Hill) ,arguing that applying forensic accounting and focusing on earnings quality allows him to find value stocks while excluding accidents that are waiting to happen.

"I would recommend the book to those compelled toward stock picking or to anyone who wants to better understand how companies manipulate their earnings. It’s an easy read — you don’t need an accounting degree to understand it — and the insights are applicable whether you prefer to go long or short. . . Avoiding the big losses is more important than getting the big win, and that is the message of this book."

Ever wonder how shorts choose stocks they don't like? Watch Brad Lamensdorf, co-manager of AdvisorShares ActiveBear all short ETF (HDGE) talk about his fund on Canada's BNN (VIDEO) and how he selects stocks for their portfolio -- you might be surprised to hear some big names like luxury retailers Coach (COH) and Tiffany (TIF)... click here to watch the whole interview and find out what other stocks he mentioned.

"Mr. DelVecchio, a square-jawed soccer fan who works out of Dallas, isn't a big-name hedge-fund manager with ultrarich clients. He manages a $280 million exchange-traded fund that can be bought and sold by investors of all stripes.

His AdvisorShares Active Bear ETF also differs from other ETFs in the market. Mr. DelVecchio, 36 years old, and his partner, Brad Lamensdorf, actively manage their positions, and they only make negative bets on stocks and bonds. Their strategy is so uncommon that fund-research group Morningstar Inc. believes Mr. DelVecchio's fund is the world's lone actively managed "short-only" ETF."